Neelkanth Entrepreneurs Private Limited Vs State of U.P. (Allahabad High Court)
Summary: Allahabad High Court dismissed the writ petition challenging a Show Cause Notice issued under Section 74A(1) of the CGST Act proposing denial of Input Tax Credit on the allegation that works purportedly sub-contracted to eighteen firms were bogus and the firms were non-existent. The Court held that Section 61 scrutiny is a pre-adjudicatory verification mechanism and is not the sole or mandatory gateway for initiation of proceedings under Section 73 or Section 74A. Where scrutiny under Section 61 has actually been undertaken and discrepancies are noticed, compliance with Rule 99 and issuance of Form GST ASMT-10 may become mandatory; however, where the proceedings originate from independent verification or other credible material, prior scrutiny under Section 61 is not a jurisdictional prerequisite. The Court distinguished precedents where scrutiny proceedings had admittedly been initiated before adjudication proceedings.
On invocation of Section 74A(5)(ii), the Court observed that the SCN specifically alleged use of fake documents/invoices, fictitious inward supplies and wrongful availment of ITC through allegedly non-existent entities. Such allegations supplied the foundational facts capable of attracting the provision relating to fraud, wilful misstatement or suppression at the initiation stage. Whether the subcontractors were actually bogus or whether the transactions were genuine required examination of evidence by the adjudicating authority and could not be decided in writ jurisdiction. The Court further held that ordinarily a writ petition against a mere SCN is premature unless the notice is wholly without jurisdiction or another recognized exception applies. The petition was therefore dismissed, while permitting the petitioner to file a detailed reply within four weeks and directing the adjudicating authority to decide it independently after adequate opportunity of hearing.
